We have developed a phage display version of the two-hybrid system, 2HPMD, which is specifically designed to do what neither the phage display system nor the yeast two-hybrid system can do-isolate natural ligands of extracellular proteins from cDNA libraries. The system is based on the observation that a protein domain needed for bacteriophage infectivity can be supplied in trans by the interaction of heterologous fusion proteins. In Phase I we demonstrated that when phage bearing one interacting partner are expressed in the same cell as the other partner fused to the infectivity conferring protein, the emerging phage are infectious and can be trapped by cocultivation with a selectible recipient. We further demonstrated that the correct ligand could be retrived from a 10 (5)-fold excess of an irrelevent cDNA library. Our main goal will be to adapt the system for high-throughput isolation of both native and artificial ligands of expressed sequences generated by the genome projects and identified by bioinformatics as physiologically and/or pathologically important. The captured ligands should provide valuable reagents for functional analysis as well as leads and new targets for drug and diagnostic development. A second goal will be to develop 2h (phi)D for use in the combinatorial optimization of binding proteins.